Albany subcommittee reviews options to add ESG screen to city investment policy

The Audit and Fiscal Sustainability Subcommittee of the City of Albany on Oct. 27 received options for adding environmental, social and governance (ESG) criteria to the city's investment policy and asked staff and the city's investment adviser to return with more anonymized data and draft policy language.

Finance Director Bridal Schwartz introduced the item as a follow-up to prior committee discussions and turned the presentation over to Justin Rossello of PFM Asset Management, who outlined four broad screening approaches: a universal absolute rating (allow only medium-or-better ESG risk ratings), a relative rating (require an issuer to rank in the top half of its sub-industry), a universal rating with an exception rule (allow high-rated issuers that fall within a top percentile of their sub-industry), and a combined absolute-and-relative threshold (issuer must be medium-or-better and in the top half of the sub-industry).

Rossello also showed an aggregate breakdown of the adviser's current approved universe of roughly 300 issuers: about 1% severe risk, 5% high risk, 45% medium risk, 47% low risk and 1% negligible risk. He and staff said that a simple medium-or-better screen would retain roughly 93% of the current approved list while narrower thresholds would exclude more issuers.

Committee members pressed staff and PFM for additional, anonymized ESG-score data so members could see the cumulative distribution of scores across the vetted universe (for example, to estimate how many issuers would be excluded at a threshold of 26 or 27 versus the categorical breaks supplied by the vendor). Justin Rossello said staff could try to obtain more granular data but cautioned that client confidentiality rules limit sharing of specific issuer names; he said the presentation was intended to show aggregate impacts of different screening approaches.

Public commenters urged the subcommittee to build an annual process for reviewing companies identified by reputable human-rights organizations. One resident said, "the Morningstar tool has been compromised" for human-rights screening and urged the subcommittee to incorporate lists from Amnesty International or U.N. reports into annual policy reviews. PFM staff said their trading systems can implement explicit company exclusions if the city supplies a list, but that integrating third-party watchlists on an ongoing basis would be more complex and would require follow-up work.

During deliberations Councilmember Jordan and others expressed support for a hybrid approach: adopt a transparent, publicly verifiable ESG-score screen (for example, medium-or-better on the vendor's scale) combined with the ability to exclude specific industries or companies. Members discussed the merits of excluding entire sub-industries (for example, some members suggested oil and gas or certain aerospace/defense exposures) but noted complications where companies in those sectors may have transition plans or limited nondefense operations. One compromise discussed was applying stricter percentile requirements for selected industries (for example, accepting only firms in the top quartile of their sub-industry for aerospace and defense).

The subcommittee did not take formal action. Members directed staff and PFM to: (1) try to provide anonymized ESG-score distributions or cumulative curves for the vetted universe and for specific industries; (2) draft model policy language reflecting a hybrid option (ESG-screen plus targeted exclusions and an annual review process); and (3) return to the subcommittee with the data and draft language for further discussion and possible referral to the full City Council. No vote on a policy change took place at the meeting.

The subcommittee's discussion clarified operational limits: PFM can implement explicit company-level exclusions if the city provides a list, but continuous monitoring of external watchlists (for example, daily integration of U.N. or Amnesty lists) would require additional work and needed confirmation from the consultant on feasibility. The committee also emphasized transparency: members favored thresholds or screens that constituents can look up publicly rather than percentile-only rules that shift as the approved list changes.

Next steps: staff will seek the cumulative distribution data requested, circulate draft policy language before the next meeting, and return for more detailed deliberation. The item will eventually require full Council consideration if the subcommittee decides on a policy change.